ADJUDICATING AUTHORITY SOUGHT BANK GUARANTEE FOR THE REFUND AS DIRECTED BY APPELLATE AUTHORITY - CORRECT?

[Mr. M. GOVINDARAJAN]

Refund

Section 54 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for getting refund by a registered person from the Department. The said section also gives powers to the Authorities to withhold the refund in certain circumstances.

Withholding of refund

Section 54(10) of the Act provides that where any refund is due  to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may-

• withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be;
• deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law.

For the purposes of this sub-section, the expression “specified date” shall mean the last date for filing an appeal under this Act.

Section 54 (11) of the Act provides that where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

Issue

The issue to be discussed in this article is as to whether the Authority can seek bank guarantee for the refund under GST Act even if the appellate authority directs the Authority to refund the amount to the registered person with reference to a decided case law.

Case law

In ‘M/S. RAJ KAMAL CARGO MOVERS VERSUS THE ASSISTANT COMMISSIONER, STATE TAX DEPARTMENT, THE CHIEF COMMISSIONER, STATE TAX DEPARTMENT. - 2023 (12) TMI 1101 - RAJASTHAN HIGH COURT , the Assistant Commissioner, Anti Evasion, Jaipur made a demand to the registered person (petitioner) for Rs.26,70,276/- and Rs. 34,88,364/-.  Rs.34,88,364/- was recovered from the registered person by the Department.   Against this order the petitioner filed appeal before the First Appellate Authority.  The Appellate Authority set aside the orders and directed the Assistant Commissioner to refund the amount Rs.34,88,364/- to the petitioner. 

The petitioner filed a refund claim online on 17.05.2022 through GST Common Portal for refund of the said amount.  The Assistant Commissioner referred this refund matter to his higher authority for withholding the amount under Section 54(11) of the Act.  The respondent No.2, the higher Authority heard the parties and came to the conclusion that there existing no reasonable and strong ground for withholding the refund and directed the respondent No. 1 to process the refund application as per the provisions of the Act provided the petitioner furnishes solvent security as per the satisfaction of the Assistant Commissioner.

The petitioner furnished the solvency security and requested the Assistant Commissioner to refund the amount with interest.  The Assistant Commissioner, considering the interest of Revenue, ordered to furnish a bank guarantee in the form of solvency security.  The petitioner contested the same before the Assistant Commissioner.  However the refund was not made to the petitioner. 

The petitioner, being aggrieved against the order of Assistant Commissioner, directing him to provide a bank guarantee in the form of solvency security filed the present writ petition before the High Court. 

The petitioner submitted the following before the High Court-

• Though the order of Higher Authority requiring the petitioner to furnish solvent security is beyond the scope of Section 54(11) of the Act, still the petitioner complied with the same.
• The Assistant Commissioner without complying with the directions of the Higher Authority has demanded bank guarantee which is not justified.
• The action of the Assistant Commissioner in demanding the bank guarantee reflects the high handedness of the said authority inasmuch as the requirement of providing solvent security cannot be equated with furnishing a bank guarantee.

Therefore the petitioner prayed the High Court to set aside the impugned order.

The Revenue, in its reply, justified the order of Assistant Commissioner and the demand of bank guarantee from the petitioner.  Further the Revenue contended that the order is made to safeguard the interest of the State and prayed the High Court to dismiss the present writ petition.

The High Court considered the submissions made by both the parties and also the facts of the case.  The High Court observed that the Assistant Commissioner has been trying to somehow block the refund to be made to the petitioner.   On filing the refund application by the petitioner, the Assistant Commissioner referred the matter to the higher Authority who ordered for the refund by the Assistant Commissioner.  The Assistant Commissioner, even after the submission of solvency security by the petitioner, has apparently not willing to refund the amount and demanded bank guarantee from the petitioner.

The High Court further observed that the bank guarantee needs to be taken from the petitioner by way of solvent security by itself is contradictory inasmuch as the term ‘solvent security’ essentially means that the person who is providing the security should not have been declared bankrupt by the Court and he has to produce documents to indicate the he owns some movable/immovable properties which is equitable to the amount for which the said security is being provided.  The bank guarantee is a guarantee given by the bank on behalf of the applicant to cover the payment obligation to a third party.  As such it cannot be said that the demand of bank guarantee by the Assistant Commissioner could be equated with providing solvent security in terms of order passed under section 54(11) of the Act.

The High Court held that the action of the Assistant Commissioner in seeking bank guarantee from the petitioner is ex-facie contrary to the directions of the higher authority and therefore the same cannot be sustained.   The High Court allowed the writ petition and set aside the impugned order of Assistant Commissioner.  Further the High Court directed the Assistant Commissioner to comply with the higher authority within a period of two weeks from the date of the order of the High Court.